July 23, 2021
In Australia, you can operate and own your business in four different ways. The simplest of them is a sole trader, followed by a partnership business. A more complex business structure is the company and company tax return perth. In addition to these three, you can go for a trust structure, too. There are two types of trust, which you can develop, a family trust or a unit trust.
What Are The Differences Between a Trust and a Company?
When you build your company, you own that business entity. It will be considered as your asset when you will file the Company tax return for your company. In contrast, an individual does not own trust. It is more like a flexible structure, and someone has control over it, not any ownership. In a word, if you are concerned about protecting your assets, trust is the best option for you.
Here we give an example of a medical practitioner. If the practitioner owns his practice, he may hold it within a company structure. Alternatively, that person can also own an income-generating asset such as investment property. Thus, the practitioner may distribute the income generated from the property through the trust system while the company remains the main business structure.
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Which one is More Beneficial? Company or Trust?
- People frequently ask which structure offers the most benefits. For example, many experts recommend owning a company with keeping trust as one of the stakeholders. In contrast, others advise setting up a trust keeping a company as one of the trustees. People are also curious to know whether a combination of both options can be suitable.
- The two recommendations we have mentioned here refer to two different alternatives. The first recommendation deals with how you should own a business, and the second recommendation points out whom or which you should choose as the trustee if you have plans to operate through a family trust.
- Whenever you form a family trust, you will require four people at four positions. You will need a settler and a trustee or some trustees first. Then, you should choose your beneficiaries. A settler is someone who settles an amount of money and starts the trust. The trustees have to look after the daily operations inside the trust. The trustees can be either a company or individuals. Beneficiaries are those whose names are present on the entitled trust deed and receive a certain amount, which the trustee decides. In addition, there may be a dignitary who can remove a trustee and appoint someone new in his place if the former trustee dies, gets bankrupted, or incapacitates.
- The trustee can distribute the real income among the beneficiaries at a very marginal tax rate. Thus, when you lodge your trust tax return, you can reduce the tax payable amount applicable for the income or capital. It is one of the significant benefits of the trust. But at the same time, this income distribution can result in huge losses, too. So, we recommend that you should keep a company as a trustee. The reason is that if your trust suffers loss and there are not sufficient assets to pay, individual trustees may have to sell their personal assets to compensate for the loss.
- If you have a company as the trustee for your family trust, it will cost you about $900. In addition, there will be some additional accounting charges and company fees, to be paid every year. However, these additional costs come in a comparatively cheaper form of insurance. Thus, individuals can save their assets.
- In a single family-run business, you can achieve the most effective tax result by using a family trust as a part of the business structure. Either your family trust may own and operate the business, or you can run the business through a company structure, where the family trust will hold all the shares. A tax accountant Perth can explain this to you.
- If you have your business operated through a trust-owned company, you will have the option to increase your after-tax profits, which you can use to grow your business. But, this amount will come in exchange for some small business entity CGT tax concessions loss.
- As the owner of your business, if you want to make withdrawals of the maximum amount in the form of income and want to get access to all the small business entity CGT concessions, you can go for a family trust. But, before you choose the structure, it is better to take the advice of a professional.
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How Tax Return Perth Can Help You?
To decide which one you should go for and regarding income tax return for your company, you can get in touch with Tax Return Perth for guidance.